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Let's say I'm a bank, and I create this really popular investment product I'm selling left and right (for example, say I'm Lewis Ranieri, and I invented the mortgage-backed security). This product is very profitable for the bank, and like in any industry, we'd like to protect the large amount of R&D effort put into developing it. In most industries, you have intellectual property rights.

Can I patent this product? If not, how do I protect my R&D efforts?

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Short Answer

You probably cannot secure any meaningful intellectual property protection for this idea. Intellectual property of this sort, if protected at all, would have to be protected as a business method patent. But such an effort would probably fail.

You might be able to trademark a snazzy name for your investment product (compare the trademark for the "stretch IRA") but even that would be a close call.

Long Answer

A series of U.S. Supreme Court cases, however, have greatly limited the availability of these kinds of patents.

In KSR v. Teleflex (2007) (unanimous), the U.S. Supreme Court tightened the standard for obviousness in order to qualify for patent protection.

In Bilski v. Kappos (2009) (unanimous to reverse, with a complicated holding as to extent of new law), the analysis required to determine that a business method could be patented was tightened, dramatically narrowing the availability of business method patents.

And, in Alice v. CLS Bank, Int'l. (2014), the U.S. Supreme Court prohibited software that generically applied an abstract idea that is not otherwise patentable, which, in concert with the previous two cases made it dramatically more difficult to obtain patents, particularly the subset of patents called "business method patents" which include most software patents.

In January of 2004, only a little more than 2% of patent applications were rejected (on Section 101 grounds which governs what is patentable). By July of 2015, that percentage is about 15%.

Before Alice in July of 2014, about 31% of business method patent applications were rejected on Section 101 grounds (already a major increase from 2007 when the U.S. Supreme Court adopted a more expensive definition of "obviousness" under Section 101 for patent law purposes in KSR International v. Teleflex, and 2010 when the U.S. Supreme Court in Bilski v. Kappos articulated a new (and functionally more restrictive) legal standard for granting software patents (although not as restrictive as the federal circuit case it reviewed which is linked), while affirming that software patents could still be obtained).

After Alice, 82% of business method patent applications were rejected.

As a practical matter, using a trade secret to protect an investment product isn't viable because investment products are securities governed by securities regulations at the state and federal levels that require full disclosure of investments, and investment products must be litigated in public courts in the event of a dispute.

Copyrights, likewise, protect particular expressions of ideas, rather than ideas themselves, and are subject to originality limitations as well.

Also, to the extent that the investment product has a tax component, the American Invents Act of 2011 expressly prohibits the establishment of tax strategy patents, and case law that the U.S. Supreme Court was on the verge of making when the AIA was adopted probably would have reached the same conclusion on a broader basis that would have also prohibited investment product patents.

So, the likelihood that this investment product idea can be protected as intellectual property is slim, but any protection would have to be as a business method patent and would have to be truly original, and completely unanticipated by global financial history or academic finance scholarship in any form.

Sometimes even though you can't protect an idea, you can protect a trademark that connects an implementation of an idea with the sponsoring institution. For example, there have been attempts to gain trademark protection for the term "stretch IRA" for a type of financial plan that involves setting up an IRA beneficiary designation so that is pays out over the beneficiary's life expectancy. But only the firm specific name and not the concept itself is protected.

for example, say I'm Lewis Ranieri, and I invented the mortgage-backed security

This idea would probably not be capable of being protected by a business method patent, because the concept of using an intangible financial asset as collateral for debt was well established in prior art, as was the idea of having negotiable debt instruments traded as a security.

Usually, new financial instruments would need new legislation. But, the legislation authorizing it would generally make the new financial instrument obvious before it was implemented and would generally require disclosure before the concept would be ripe enough to patent.

Analysis

In any case, the benefits of intellectual property protection might be slight or negative.

For a financial product, value is related significantly to wide adoption of the idea, and an equivalent to a "closed source" financial product, even if it were possible, wouldn't be widely adopted and hence would lack utility to practitioners.

The sweet spot for financial products is to have them widely accepted, but to have your firm recognized as the leader in using them and a preferred vendor due to your high level of experience using the products relative to the competition.

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Edited It seems that, at one point, financial products were patentable if sufficiently novel. For example, in Paine, Webber, Jackson & Curtis, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 564 F.Supp. 1358 (D. Del. 1983), the District of Delaware held that a financial product that Merrill Lynch offered, called a Cash Management Account, was patentable.

Experienced practitioners have pointed out to me that the trend in modern times is to limit the scope of patentability, and so such products are likely unpatentable today.

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    I really wish it was still true. That was in the era when everyone thought "anything under the Sun made by man [SIC]" was patent eligible. And the trend was to increase the scope of what was patentable. In fact it was before "patent legible" was coined. Under recent SCOTUS rulings, @ohwilleke's feeling that you can't do this anymore is good advice/education. - a registered patent practitioner who can actually give patentability opinions/advice - which this isn't. – George White Mar 25 at 5:13
  • @GeorgeWhite very interesting. You obviously have way more knowledge than me so I yield to you. Do you think Alice Corp. has been the most destructive SCOTUS ruling to patentability? – user36183 Mar 25 at 15:21
  • Yes. I think Alice is the worst but it built on Bilski and Mayo. The most memorable line in Alice's decision is - "we need not labor to delimit the precise contours of the 'abstract ideas' category in this case. . . " – George White Mar 29 at 20:04
  • And in case after case SCOTUS and CAFC, under them, reduce claims to their "gist" even though they acknowledge that it could "swallow all of patent law", conflate something being old with being abstract, and insist that a claim be directed to something technological (a requirement of European patent law but not U.S. law). – George White Mar 29 at 20:26

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